August 1, 2014

The Future of Minimum Wage Will Be Decided in Cities

In June, the City Council of Seattle made headlines when it voted unanimously to raise its minimum wage to $15 an hour, the highest in the country. While Seattle wasn’t the first city to take minimum wage legislation into it’s own hands, it seems to be at the forefront of a national trend toward significant minimum wage hikes at the local level. In just over a year, at least six other cities and counties have mandated minimum wages as high as $15, and several more have legislation in the works.

In 2003, Santa Fe and San Francisco became the first cities to institute their own minimum wages, distinct from their states—and it wasn’t without opposition. Each city faced significant resistance from the business community: In San Francisco, organizations like the Chamber of Commerce and the Association of Realtors campaigned against the ballot proposition, arguing that it would lead to worker layoffs. In Santa Fe, the local chamber of commerce joined with New Mexicans for Free Enterprise and four other plaintiffs to sue the city, arguing that the municipality did not have the power to enact a minimum wage higher than the state’s. Despite the opposition, the San Francisco raise passed with 60 percent of a ballot vote, and the New Mexico Court of Appeals ruled in favor of Santa Fe’s legislation. But over the next eight years, only three other localities raised their minimum wage above the state level.

Yet, since the start of the recession, more and more Americans have turned to low-wage jobs, highlighting the need to improve conditions in these high-growth, low-paying fields. Finally, this year, the idea of city-specific minimum wages has become “mainstream,” says Paul Sonn, the legal co-director of the National Employment Law Project, which has advocated for higher city-level minimum wages for more than a decade. And the increases—both those recently passed and those under consideration—are not insignificant. Seattle’s minimum wage will increase from $9.32 to $15 by 2018, San Francisco voters will decide in November whether to increase the city’s minimum wage from $10.74 to $15 by 2018, and in July, Chicago Mayor Rahm Emanuel recommended Chicago raise its minimum wage from $8.25 to $13 by 2018.

According to interviews with experts and advocates, local jurisdictions seem to be the next place we can expect minimum wage legislation for a few important reasons:

1. It’s easier to pass legislation at the city level: It’s true that income inequality and fair-work policies have dominated the national spotlight in recent months, and minimum wage increases seem like one of the “tried and true” policy solutions, says Bill Lester, a professor specializing in economic development at the University of North Carolina’s Department of Regional and City Planning. But with Congress gridlocked, federal minimum wage reform seems unlikely and unrealistic. Even at the state level, there are too many varying demographics and political leanings to make minimum wage legislation an easy process.

It’s especially difficult to pass legislation in state governments that hasn’t already been tested and proven in the state’s localities or in other states. Cities, which often lean left, have become “policy incubators,” according to Sonn, to develop, test, and prove new policies; he compared the minimum wage movement to the paid sick days movement, which also began in cities.

2. Concerted targeting by advocacy groups: Again,given the political realities at the federal and state level, advocacy groups have changed their strategies and have begun to target the local level, says Erin Shannon, the small business director at the Washington Policy Center. For example, advocates in Washington state used a minimum wage victory in the city of SeaTac to build momentum for the change in Seattle. “They’ve accomplished that; now they’re determining which city they’re going to target next,” Shannon says. Movements such as 15 Now and Fight for 15, and the strikes by Walmart employees have sprung up in cities across the country and pushed urban minimum wage campaigns into the public spotlight, according to Ken Jacobs, chair of the UC Berkeley Labor Center. 15 Now, which began in January in Seattle, now has chapters in 20 cities across the United States, all advocating for a $15 minimum wage.

3. Cities have higher costs of living: In a paper published last month, Arindrajit Dube, an economics professor at UMass Amherst, proposed that state and local governments have the power to set local minimum wage—as adjusted for the cost of living and the median hourly wage in the jurisdiction. “Since major metropolitan areas tend to have both higher wages and higher costs of living, minimum wage add-ons may make sense for large cities,” Dube writes. Lester echoes this sentiment: “Cities are where inequality is most plainly felt.” And even in growing cities with high minimum wages, such as San Francisco, there has been significant unrest around the negative impacts of a booming industry (such as tech) on the rest of the city’s economy. As Lester notes, rising inequality levels often lead to calls for economic changes that obviously benefit lower-income families.

Despite the shifts since the 2003 battles in San Francisco and Santa Fe, wage changes are still producing considerable backlash. In Seattle alone, the movement has seen legal opposition from the International Franchise Association (IFA), and legislative opposition from a group of small business owners called Forward Seattle, as well as conservative activist Tim Eyman, who has written 20 ballot initiatives and one referendum advocating for a smaller state government. The IFA argues that the ordinance unfairly discriminates against local franchises by treating them as large businesses under the law. Forward Seattle says a smaller raise—that is more doable for businesses—should be approved through a popular citywide vote. Eyman argues that minimum wages should be uniform throughout the state, which would require a statewide vote on Seattle’s increase that likely would not pass.

Opponents of minimum wage hikes have highlighted potential downsides of varied city-specific minimum wages. These policies could create a “patchwork” of different minimum wages, says Shannon, leading to distortions along city borders. This could be especially detrimental in large metropolitan areas, where satellite cities could have much lower wages than the nearby central city. Employers with businesses in multiple cities, or even in the city and its suburbs, might need to pay their employees different wages, and businesses across the street could fall under different wage regulations. City minimum wages could also incentivize businesses to move to areas with a lower minimum wage or workers in neighboring communities to commute to the city, increasing competition among low-wage workers within city limits. To put this in context, Alan Berube and Sid Kulkarni, in an blog post for the Brookings Institute, showed that between 2009 and 2011, there were an average of 149,000 jobs in the city of Seattle that paid less than $15 an hour, while over that same time frame, there were an average of 216,000 jobs in the rest of Kings County that paid hourly wages below $15.

Across the country, we’re seeing how this can cause heightened tension between cities and states. For example, activists in Oklahoma City organized a proposed ballot initiative to increase the city’s minimum wage to $10.10 per hour, but the state blocked the initiative with a law prohibiting Oklahoma cities from increasing their minimum wage. And in Rhode Island, the legislature voted to approve language in its $8.7 billion budget prohibiting cities and towns from instituting their own minimum wages, effectively blocking a proposed minimum wage increase in Providence. Although many states are also passing minimum wage hikes, this strained relationship between states and cities can dissuade cities—which, again, often have higher costs of living than the rest of the state—from mandating wages higher than the state’s wage floor.

Yet Sonn, from the National Employment Law Project, points out that in cities such as Santa Fe and San Francisco, research has shown no evidence of appreciable job losses or job relocation from urban-focused minimum wages. That seems to be because many low-wage jobs are “location linked,” Sonn says. Restaurants, retail stores, and personal service companies employ many minimum wage workers, and minimum wage hikes target these industries that have little potential for off-shoring or intrastate movement, Lester says. However, in a small municipality with a local economy based on manufacturing, a higher minimum wage could incentivize businesses to leave.

As David Dayen reported earlier this week, the best way forward may be in regional cooperation. Although it can be difficult, Lester says that metropolitan minimum wages are ideal, given the geography of labor markets. Reich’s research on the effects of minimum wage variation along county and state lines does not show adverse employment effects. Therefore, he says he does not expect negative effects for cities or metropolitan areas that comprise “a large majority or more of a county’s population.” Jacobs agrees, saying, “In areas with lots of smaller places, having regional regulations is smart.”

And this type of coordination has already begun. In December, Washington, D.C. and two neighboring Maryland counties, Prince George’s and Montgomery, coordinated to increase their minimum wages simultaneously, creating a region where 2.5 million residents will live in an area with a minimum wage of $11.50 by 2017. And on the east side of the San Francisco Bay, bordering cities Richmond and Berkeley passed increased minimum wage legislation, while Oakland is contemplating an increase as well (a battle Dayen has more details on).

While the impact of such regional changes remains to be seen, it's clear the minimum wage debate will continue in urban centers across the country. Seattle, Sonn argues, has opened the floodgates: “It’s captured the national imagination,” he says. “It’s changed the landscape.”